Bankruptcy & Restructuring Valuations

Bankruptcy is the process of handling the debt of a business that is not able to pay its liabilities. When a business enters bankruptcy proceedings, it is critical to assess the value of the business and its assets to begin the restructuring process. There are three general types of bankruptcy in which businesses will end up:

Chapter 7 — Also known as “liquidation bankruptcy,” in Chapter 7 filing, a court-approved trustee takes over the assets of the business in bankruptcy, liquidates those assets, and pays off the business’s creditors.

Chapter 11 — Also known as “reorganization bankruptcy,” a Chapter 11 filing allows for a business that wishes to continue operations to do so while repaying creditors through a court-approved reorganization plan. Chapter 11 filings allow struggling companies to survive, but is costly and time consuming. To qualify for Chapter 11 and avoid Chapter 7, the business must demonstrate (through proper bankruptcy appraisals) that the value of the reorganized business is much greater than the liquidation value of the business.

Out-of-Court Restructuring — This option is cheaper than a Chapter filing and provides the business with more flexibility; the business maintains greater control over its operations. In a typical out-of-court restructuring, a creditors’ committee is formed to negotiate with the business, which must disclose financial and other information to the committee to come to a settlement.

In any bankruptcy or restructuring proceeding, expert asset appraisals and business valuations are crucial to maintaining the confidence of the creditors’ committee or trustee. Whether filing under Chapter 7 to liquidate assets or under Chapter 11 to reorganize, be sure to use a full-service appraisal firm with expertise in bankruptcy appraisals and valuations.

By: Present Value

Tags: bankruptcy, Chapter 11, Chapter 7, restructuring
Posted in Business Valuation, Uncategorized | 1 Comment »